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Question(s) / Instruction(s):

1. Stockholders of a corporation directly elect

a. the president of the corporation.

b. the board of directors.

c. the treasurer of the corporation.

d. all of the employees of the corporation.

 

2. Which one of the following would not be considered an advantage of the corporate form of organization?

a. Limited liability of stockholders

b. Separate legal existence

c. Continuous life

d. Government regulation

 

3. Allen Sutton has invested $600,000 in a privately held family corporation. The corporation does not do well and must declare bankruptcy. What amount does Sutton stand to lose?

a. Up to his total investment of $600,000

b. Zero

c. The $600,000 plus any personal assets the creditors demand

d. $400,000

 

4. The officer that is generally responsible for maintaining the cash position of the corporation is the

a. controller.

b. treasurer.

c. cashier.

d. internal auditor.

 

5. The amount of stock that may be issued according to the corporations charter (subject to Securities and Exchange Commission approval), is referred to as the

a. authorized stock.

b. issued stock.

c. unissued stock.

d. outstanding stock.

 

6. If Morgan Company issues 2,000 shares of $5 par value common stock for $140,000, the account

a. Common Stock will be credited for $140,000.

b. Paid-in Capital in Excess of Par Value will be credited for $10,000.

c. Paid-in Capital in Excess of Par Value will be credited for $130,000.

d. Cash will be debited for $130,000.

  

7. Which of the following represents the largest number of common shares?

a. Treasury shares

b. Issued shares

c. Outstanding shares

d. Authorized shares

 

8. The acquisition of treasury stock by a corporation

a. increases its total assets and total stockholders equity.

b. decreases its total assets and total stockholders equity.

c. has no effect on total assets and total stockholders equity.

d. requires that a gain or loss be recognized on the income statement.

 

9. Dividends in arrears on cumulative preferred stock

a. never have to be paid, even if common dividends are paid.

b. must be paid before common stockholders can receive a dividend.

c. should be recorded as a current liability until they are paid.

d. enable the preferred stockholders to share equally in corporate earnings with the common stockholders.

 

10. The date on which a cash dividend becomes a binding legal obligation is on the

a. declaration date.

b. date of record.

c. payment date.

d. last day of the fiscal year end.

 

11. The cumulative effect of the declaration and payment of a cash dividend on a companys financial statements is to

a. decrease total liabilities and stockholders equity.

b. increase total expenses and total liabilities.

c. increase total assets and stockholders equity.

d. decrease total assets and stockholders equity.

 

12. The effect of the declaration of a cash dividend by the board of directors is to

Increase Decrease

a. Stockholders equity Assets

b. Assets Liabilities

c. Liabilities Stockholders equity

d. Liabilities Assets

 

13. The board of directors of Weston Company declared a cash dividend of $1.50 per share on 42,000 shares of common stock onJuly 15, 2007. The dividend is to be paid onAugust 15, 2007, to stockholders of record onJuly 31, 2007. The correct entry to be recorded onJuly 15, 2007, will include a

a. debit to Dividends Payable

b. debit to Retained Earnings.

c. credit to Cash.

d. credit to Retained Earnings.

 

14. The board of directors of Weston Company declared a cash dividend of $1.50 per share on 42,000 shares of common stock onJuly 15, 2007. The dividend is to be paid onAugust 15, 2007, to stockholders of record onJuly 31, 2007. The correct entry to be recorded onAugust 15, 2007, will include a

a. debit to Retained Earnings.

b. credit to Retained Earnings.

c. credit to Dividends Payable.

d. debit to Dividends Payable.

 

15. A stock split will

a. have no effect on retained earnings.

b. increase total paid-in capital.

c. increase the total par value of the stock.

d. have no effect on the par value per share of stock.

 

16. A disadvantage of the corporate form of organization is

a. professional management.

b. tax treatment.

c. ease of transfer of ownership.

d. lack of mutual agency.

 

17. A disadvantage of the corporate form of business is

a. its status as a separate legal entity.

b. continuous existence.

c. government regulation.

d. ease of transfer of ownership.

 

18. On the dividend record date

a. a dividend becomes a current obligation.

b. no entry is required.

c. an entry may be required if it is a stock dividend.

d. Dividends Payable is debited.

 

19. What is the total stockholders equity based on the following account balances?

Common Stock $1,000,000

Paid-In Capital in Excess of Par 80,000

Retained Earnings 380,000

Treasury Stock 40,000

a. $1,260,000

b. $1,420,000

c. $1,500,000

d. $920,000

 

20. What is the total stockholders equity based on the following account balances?

Common Stock $400,000

Paid-In Capital in Excess of Par 50,000

Retained Earnings 175,000

Treasury Stock 25,000

a. $650,000

b. $625,000

c. $600,000

d. $450,000

 

21. What is the total stockholders equity based on the following account balances?

Common Stock $550,000

Paid-In Capital in Excess of Par 50,000

Retained Earnings 180,000

Treasury Stock 30,000

a. $600,000

b. $810,000

c. $780,000

d. $750,000

 

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